R41483 Follow-On Biologics The Law and Intellectual Property Issues

Follow-On Biologies: The Law and
Intellectual Property Issues

John R. Thomas

Visiting Scholar

January 15, 2014

Congressional Research Service

7-5700

www.crs.gov

R41483

CRS Report for Congress

Prepared for Members and Committees of Congress

Follow-On Biologies: The Law and Intellectual Property Issues

Summary

The term “biologies” refers to a category of medical preparations derived from a living organism.
These medicines have added notable therapeutic options for many diseases and impacted fields
such as oncology and rheumatology. The biologies industry invests extensively in R&D and
contributes to a rapidly expanding market for these treatments. Biologies are often costly,
however, in part due to the sophistication of the technologies and the manufacturing techniques
needed to make them.

Some commentators have also observed that, in contrast to the generic drugs available in
traditional pharmaceutical markets, few “follow-on” biologies compete with the original, brand-
name product. The lack of competition in the biologies markets is perceived to be a consequence
of the complexity of biologies in comparison with small-molecule, chemical-based
pharmaceuticals. As a result, previously existing accelerated marketing provisions for traditional
generic drugs provided under the Federal Food, Drug, and Cosmetic Act do not comfortably
apply to biologies.

Congress turned to these concerns when it enacted the Biologies Price Competition and
Innovation Act (BPCIA) of 2009. The BPC1A was incorporated into Title Vll of the Patient
Protection and Affordable Care Act. The BPCIA included three significant components. First, the
BPCIA established a licensure pathway for competing versions of previously marketed biologies.
In particular, the legislation established a regulatory regime for two sorts of follow-on biologies,
termed “biosimilar” and “interchangeable” biologies. The Food and Drug Administration (FDA)
was afforded a prominent role in determining the particular standards for biosimilarity and
interchangeability for individual products.

Second, the BPCIA created FDA-administered periods of regulatory exclusivity for certain brand-
name drugs and follow-on products. The BPCIA also provides for a term of regulatory exclusivity
for the applicant that is the first to establish that its product is interchangeable with the brand-
name product. Finally, the BPCIA created a patent dispute resolution procedure for use by brand-
name and follow-on biologic manufacturers.

A core issue concerning the BPCIA is its ability to preserve innovation while also stimulating
competition in the biologies market. Some observers believe that due to the unique nature of
biologies and their manufacture, the follow-on biologies market may not yield the same level of
savings seen with small-molecule generic drugs. In contrast with traditional generic drugs, more
clinical trials may be required, manufacturing methods may be more difficult to replicate in
distinct facilities, and follow-on firms may be exposed to higher marketing costs. Whether
industry will make extensive use of the BPCIA’s follow-on approval pathway also is not yet
certain.

Resolution of the scientific and legal issues that the BPCIA raises will likely engage the courts
and the FDA for many years to come. It may also take some time for members of the biologies
industry to develop a working familiarity and appropriate strategies within the BPCIA
framework. As a result, marketplace availability of significant numbers of follow-on biologies
may not be a short-term proposition.

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Follow-On Biologies: The Law and Intellectual Property Issues

Contents

Introduction 1

The Biologies Industry 3

FDA Regulation of Biologies 4

Biosimilars 5

Interchangeable Biologies 6

The Role of the FDA 6

Regulatory Exclusivities 6

First Interchangeable Products 8

Patent Dispute Resolution 8

The Potential Market for Follow-On Biologies 12

Clinical Trials 14

Manufacturing Considerations 15

Sales and Marketing 16

Potential Industry Responses 18

New Biologic License Applications (BLAs) 18

Collaborative Work with Big Pharma 18

Biobetters 19

Concluding Observations 20

Contacts

Author Contact Information 21

Acknowledgments 21

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Follow-On Biologies: The Law and Intellectual Property Issues

Introduction

Congressional interest in the availability of lower-cost versions of biologic drugs (biologies) led
to the 2010 enactment of the Biologies Price Competition and Innovation Act of 2009 (BPC1A),
which was incorporated as Title Vll of the Patient Protection and Affordable Care Act. 1 The
BPC1A included three significant components. First, the BPC1A established an expedited
licensure pathway for competing versions of previously marketed biologies. The BPC1A also
created FDA-administered periods of data protection and marketing exclusivity for certain brand-
name drugs and follow-on products. Finally, the BPC1A created a patent dispute resolution
procedure for use by brand-name and follow-on biologic manufacturers. 2

The term “biologies” refers to a category of medical treatments derived from living organisms/'
Biologies more specifically consist of “a virus, therapeutic serum, toxin, antitoxin, vaccine,
blood, blood component or derivative, allergenic product, or analogous product ... applicable to
the prevention, treatment, or cure of a disease or condition of human beings.” 4 Today, 20% of the
drugs on the market are biologies 5 and many more new biologies reportedly are in the pipeline
and/or in the approval process. 6 In 2007, “biotechs accounted for 42% of preclinical candidates
and 26% of submissions for US marketing approval.” 7 According to Standard & Poors, biotech
drugs are two times as likely to be approved as small molecule products. 8 Projections are that by
2014, 50% of the top drugs will be the result of biotechnology. 9 EvaluatePharma argues

that the percentage of sales from biotechnology products (bioengineered vaccines +
biologies), within the world’s top 100 drugs, is set to increase from 34% in 201 1 to 49% in
2018. In the broader market, sales from biotechnology products are set to capture 23% of the
world pharmaceutical market by 2018, versus the current share of 19% in 201 1. 10

The biologies sector is highly innovative and invests extensively in research and development
(R&D) in its effort to provide products that contribute to the health and well-being of the nation.
Observers agree that the biologies market is rapidly expanding by any number of measures,
including the quantity of approved products, the size of the market, and the importance of these
drugs to the health of U.S. citizens. In particular, these medicines have added notable therapeutic
options for many diseases and impacted fields such as oncology and rheumatology. 11

1 P.L. 111-148, 124 Stat. 119.

2 See James N. Czaban et al., "Panacea or Poison Pill? Making Sense of the New Biosimilars Law,” 8 BNA
Pharmaceutical Law & Industry Report (May 26, 2010), 698.

3 Robert N. Sahr, “The Biologies Price Competition and Innovation Act: Innovation Must Come Before Price
Competition,” 2009 Boston College Intellectual Property & Technology Forum (July 19, 2009), 070201.

4 42 U.S.C, §262(i).

5 Ernst & Young, Beyond Borders, Global Biotechnology Report 2008, 30.

6 Kerry A. Dolan, “Biology Rising,” Forbes.com, May 12, 2006, available at http://www.forbes.com/2006/05/12/
merck-pfizer-amgen-cz_kd_0512biologics_print.html.

7 Steven Silver, Industry Surveys 201 — Biotechnology, Standard & Poors, August 13, 2009, 9-10.

8 Steven Silver, Industry Surveys 2012 — Biotechnology, Standard & Poors, August 16, 2012, 4.

9 Ibid., 10.

10 EvaluatePharma, World Preview 2018, Embracing the Patent Cliff, June 2012, 13, available at
https://www.evaluatephanna.co m/secure/FileResourceDownload.aspx?id=98a75eab-95f6-41d8-903f-4732848fdf78.

11 See generally Mary Ann Liebert, Inc., “Realizing the Promise of Pharmacogenomics: Opportunities and Challenges,”
26 Biotechnology Law Report (June 2007), 261.

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Along with their benefits, biologic drugs also have contributed to the cost of health care.
Typically, biopharmaceuticals are more expensive than traditional, chemical-based drugs and
while

prescription drug spending has been a relatively small proportion of national health care
spending (10% in 2006, compared to 31% for hospitals and 21% for physician services), it
[prescription drug spending] has been one of the fastest growing components, until recently
growing at double-digit rates compared to single-digit rates for hospital and physician

services. 12

Some biologies are particularly costly. For example, Genentech Inc. reportedly charges $4,400 for
one month’s treatment with Avastin®, a cancer drug. 13 The Centers for Medicare and Medicaid
Services, which administers federal benefit programs for elderly and low-income citizens,
reportedly spends approximately $2 billion each year on Epogen®, a treatment for anemia. These
high costs are commonly attributed to the risks firms undertake in developing biologies, as well
as the sophisticated biotechnologies and manufacturing techniques needed to make them. 14 But
commentators have often observed that, in contrast to the generic drugs available in traditional
pharmaceutical markets, few “follow-on” biologies compete with the original, brand-name
product. 15

The lack of competition in the biologies markets is perceived to be a consequence of the distinct
technical and legal aspects from the regulation of traditional, chemically based pharmaceuticals.
Biologies differ significantly from traditional pharmaceuticals in their complexity and method of
manufacture. Typical pharmaceutical products have a chemical origin. They consist of small
molecules, on the order of dozens of atoms, which may be readily characterized and reproduced
through well-understood chemical processes. 16

In contrast, biologies are often made up of millions of atoms, feature a more complex structure
than traditional pharmaceuticals, and are manufactured from living cells through biological
processes. 17 As a result, the technical challenges that a competitor faces in developing a product
that may be viewed as interchangeable with a particular brand-name biologic product may be
considerable, and in some cases perhaps even insurmountable. 18 For this reason, many experts do
not describe competing biologic products as “generics,” as is the case for small-molecule
pharmaceuticals; the terms “follow-on biologic” or “biosimilar” are commonly used instead. 19
The 1 1 1 th Congress accounted for these distinctions when it enacted the BPC1A.

12 Kaiser Family Foundation, Prescription Drug Trends, September 2008, available at http://www.kff.org.

13 Paula Tironi, “Pharmaceutical Pricing: A Review of Proposals to Improve Access and Affordability of Prescription
Drugs,” 19 Annals of Health Law (2010), 311.

14 Pamela Jones Harbour, Commissioner, Federal Trade Commission, The Competitive Implications of Generic
Biologies, June 14, 2007, available at http://www.ftc.gov/speeches/harbour/070614genbio.pdf.

15 Ibid.

16 A. Taylor Corbitt, “The Phannaceutical Frontier: Extending Generic Possibilities to Biologic Therapies in the
Biologies Price Competition and Innovation Act of 2007,” 18 DePaul Journal of Art, Technology & Intellectual
Property Law (Spring 2008), 365.

17 Melissa R. Leuenberger-Fisher, “The Road to Follow On Biologies: Are We There Yet?,” Biotechnology Law
Report, August 2004, 389.

Is Dawn Willow, “The Regulation of Biologic Medicine: Innovators’ Rights and Access to Healthcare,” Chicago-Kent
Journal of Intellectual Property, 2006, 32.

19 Ibid.

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This report reviews the BPCIA within the context of intellectual property and innovation issues.
This study first provides an introduction to the biologies industry. Next, this report introduces the
regulatory and intellectual property provisions of the BPCIA. This analysis then considers the
potential market for biosimilars and possible industry responses that may arise in the wake of this
legislation. This report closes with concluding observations.

The Biologies Industry

In the United States, 2011 revenue from the sale of biopharmaceutical products (as reported by
public companies) were an estimated $58.8 billion, according to recent data. 20 The United States
provides the largest market for biotech drugs; 56% of global sales in 2007 were generated in the
United States. 21 During 2007, worldwide sales of biotech products totaled $75 billion, up 12.5%
over 2006, a rate of growth almost twice that of world-wide pharmaceutical market. 22 Globally,

22 biotechnology products generated sales of over $1 billion in 2007 compared with six biologies
in 2002. 21 Sales of biotechnology products comprised 19% of worldwide prescription and over
the counter drug sales in 201 1 and are expected to expand to 23% of the market by 20 15. 24

The U.S. biotechnology sector is highly research intensive. In 2011, public companies invested
29.3% of U.S. revenues in domestic R&D, up from 28.2% the previous year. 25 Another analysis
found that “over the past 25 years, average R&D intensity (R&D spending to total firms assets)
for this industry was 38 percent ... [while] over this same period average R&D intensity for all
industries was only about 3 percent.” 26 In comparison, research intensity in the small-molecule
pharmaceutical industry was 25% over the same time period. 27 Innovative activities have resulted
in a situation where “for several years in a row, biotech companies have secured more product
approvals than their big pharma counterparts, even though big pharma significantly outspends the
biotechnology industry on research and development.” 28 One estimate is that biotechnology
products comprise 25% of the total pharmaceutical pipeline. 29

The total capitalized cost of developing a new biotechnology drug (including those that fail
testing and the development time costs) is estimated at $ 1 .2 billion, similar to small-molecule
products. 30 The time it takes to develop and obtain marketing approval for a biopharmaceutical

1,1 Ernst & Young, Beyond Borders, Global Biotechnology Report 2012, 27, available at http://www.ey.com/
Publication/vwLUAssets/Beyond_borders_2012/$FILE/Beyond_borders_20 12.pdf.

21 IMS Elealth, IMS Health Reports Global Biotech Sales Grew 12.5 Percent in 2007, Exceeding $75 Billion , June 17,
2008, available at http://www.imsliealth.com/portal/site/imshealth/menuitem.a46c6d4df3db4b3d88f61 1019418c22a/?
vgnextoid=bba69e392879all0VgnVCM100000edl52ca2RCRD&cpsextcurrchannel=l.

22 Ibid.

23 Ibid

24 World Preview 2018, Embracing the Patent Cliff, 13.

25 Beyond Borders, Global Biotechnology Report 2012, 27.

26 Joseph H. Golec and John A. Vernon, Financial Risk in the Biotechnology Industry, National Bureau of Economic
Research, November 2007, Abstract page, available at http://www.nber.org/papers/wl3604.

27 Ibid, 4.

2S Ernst & Young, Beyond Borders, Global Biotechnology Report 2007, 1 .

29 IMS Health Reports Global Biotech Sales Grew 12.5 Percent in 2007, Exceeding $75 Billion.

30 Joseph A. DiMasi and Henry G. Grabowski, “The Cost of Biophannaceutical R&D: Is Biotech Different?”
Managerial and Decision Economics, 2007, 475, available at http://www.manhattan-institute.org/projectfda/
(continued...)

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averages 97.7 months, compared to 90.3 months for chemical drugs. 31 In addition, the success
rate for FDA approval of biotechnology products is 30.2% versus 21.5% for traditional drugs. 32
Biologies tend to fail most often in Phase III trials when significant funds have been expended on
the development of the product. 33

“There is no question that biotechnology is now the engine of innovation for the drug
development industry,” according to experts at Ernst & Young. 34 This innovation often takes place
over the lifetime of the drug. According to a Boston Consulting Group study of 58 biological
products licensed in the United States between 1986 and 2006, 47% had at least one additional
FDA-approved indication after the initial FDA approval. Of these, “One -third of the new
indications for BLAs were approved within three years of the initial indication, while another
third of the new indications were approved more than seven years after the approval of the initial
indication.” 35 These additional clinical indications can be significant:

• Herceptin, originally approved for metastatic breast cancer, was later approved for
adjuvant use in early stage cancer and may prove to be even more valuable there;

• Avastin was approved originally for colorectal cancer, and subsequently for lung
cancer ...;

• Some of the approved therapies for rheumatoid arthritis later proved effective
against other autoimmune conditions, from Crohn’s disease to psoriasis . 36

Biologies are expensive when compared to small-molecule drugs. There are several reasons for
this including the cost of manufacturing, storage and distribution considerations, and method of
administration. Spending on pharmaceuticals comprises 10%-20% of total U.S. healthcare
spending; 20% of the spending on pharmaceuticals is for biologies. 37

FDA Regulation of Biologies

The FDA for the most part regulates small-molecule drugs and biologies under two different
statutes. Traditional pharmaceuticals fall under the Federal Food, Drug and Cosmetic Act
(FFDCA). The FFDCA in turn incorporates the Drug Price Competition and Patent Term

(...continued)

wiley_interscience_cost_of_biophann.pdf.

31 Henry Grabowski, “Follow-on Biologies: Data Exclusivity and the Balance Between Innovation and Competition,”
Nature Reviews/Drug Discovery, June 2008, 481.

32 Tufts Center for the study of Drug Development, Average Cost to Develop a New Biotechnology Product is $1.2
Billion, November 9, 2006, available at http://csdd.tufts.edu/NewsEvents/NewsArticle.asp?newsid=69.

33 Follow-on Biologies: Data Exclusivity and the Balance Between Innovation and Competition. 481 .

34 Beyond Borders, Global Biotechnology Report 2007. 1.

35 Maya Said, Charles-Andre Brouwers, Peter Tollman, Continued Development of Approved Biological Drugs, Boston
Consulting Group, White Paper, December 2007, 3, available at http://www.bcg.com/documents/filel5138.pdf.

36 Henry G. Grabowski, “Data Exclusivity for Biologies: What is the Appropriate Period of Protection?” AEI Outlook,
September 8, 2009, available at http://www.aei.org/outlook/100068.

' 7 Phil Galewitz, “Checking In With Patricia Danzon on the Hot Topic of ‘Biologies,’” Kaiser Health News, July 15,
2009, available at http://www.kaiserhealthnews.org/Checking-In-Witli/Biologics.aspx.

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Restoration Act of 1984, which is commonly known as the Hatch-Waxman Act. 38 The Hatch-
Waxman Act established an accelerated regulatory approval pathway for generic versions of
previously approved, brand-name drugs. This approval mechanism has been described as
involving “relatively simple showings that the proposed generic version uses the same active
molecule in the same strength, dosage, form, and route of administration, and the generic version
is ‘bioequivalent’ to the original product.” 39

The great majority of biologies is instead regulated under Section 35 1 of the Public Health
Service Act (PHSA), which has been codified at 42 U.S.C. Section 262. 40 Because the FDA
licenses most biologies via the PHSA, rather than the FFDCA, prior to the enactment of the
BPCIAno generally applicable abbreviated statutory pathway for follow-on versions of biologies
existed. 41 Further, because of the increased complexity of biologies in comparison with
chemically based drugs, many experts believed that the expedited approval process available
under the Hatch- Waxman Act could not simply be incoiporated into the PHSA. In particular,
some follow-on manufacturers might not be able to show that their product is the “same” as that
offered by the brand-name firm, as the Hatch- Waxman Act requires. 42

Congress intended to address these concerns with the 2010 enactment of the Biologies Price
Competition and Innovation Act (BPC1A). The BPC1A is a complex statute that principally
amends Section 351 of the Public Health Service Act. 43 The 2010 legislation establishes a
regulatory regime for two sorts of follow-on biologies, termed “biosimilar” and “interchangeable”
biologies respectively. The FDA is afforded a prominent role in determining the particular
standards for biosimilarity and interchangeability for individual products.

Biosimilars

A follow-on biologic is biosimilar to a brand-name product if it is deemed to be “highly similar to
the reference product notwithstanding minor differences in clinically inactive components” and
“there are no clinically meaningful differences between the [biosimilar] and the reference product
in terms of safety, purity, and potency of the product.” 44 In order for a follow-on biologic to
qualifiy as a biosimilar, an applicant must demonstrate to the FDA that a number of requirements
are met. The BPCIA stipulates that a follow-on product is biosimilar if (1) analytical, animal, and
clinical studies show that it is highly similar to the reference product, notwithstanding minor
differences in clinically inactive components; (2) the two products have the same mechanism of
action; (3) the condition of use in the proposed product has been previously approved for the

38 9 8 th Congress, P.L. 98-417, 98 Stat. 1585.

39 See Czaban, et al.

40 A small number of biologies have reportedly been approved as drugs under the FFDCA, including insulin, human
growth honnone, and certain protein products. See Assessing the Impact of a Safe and Equitable Biosimilar Policy in
the United States, Hearing Before H. Subcommittee on Health and the H. Comm, on Energy and Commerce, 1 10 th
Cong. (2007) (statement of Janet Woodcock, Deputy Commissioner, Chief Medical Officer, FDA).

41 Jeremiah J. Kelly, “Follow-On Biologies: Legal, Scientific, and Policy Considerations,” 13 Journal of Health Care
Law and Policy (2010), 257.

42 21 U.S.C. §355(j)(2)(A).

43 42 U.S.C. §262.

44 42 U.S.C. §262(i)(2).

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reference product; (4) the route of administration, dosage form, and strength of the two products
are the same; and (5) the manufacturing process provides for a safe product. 45

Interchangeable Biologies

If a follow-on biologic is judged by the FDA to be interchangeable with a brand-name product,
then “the biological product may be substituted for the reference product without the intervention
of the health care provider who prescribed the reference product.” 46 A follow-on biologic is
interchangeable if (1) it can be expected to produce the same clinical result as the reference
product in any given patient and (2) the risk, in terms of safety or diminished efficacy or
switching between the two products, is not greater than the use of the reference product without
such alternation. 47

The Role of the FDA

The BPCIA provides the FDA with the authority to issue guidelines that implement the statutory
standards of biosimilarity and interchangeability. These guidelines may be general or specific in
nature, and must be issued after the public is afforded the opportunity for comment. The FDA is
specifically allowed to indicate in a guidance document that “the science and experience” does
not currently allow a product or product class to qualify as biosimilar or interchangeable. 45

Regulatory Exclusivities

The BPCIA provides for regulatory exclusivities for both brand-name products and the first
interchangeable follow-on biologic. With respect to brand-name products, the BPCIA offers two
sorts of regulatory exclusivity, one with a duration of 4 years, and the other 12 years. The BPCIA
specifically provides:

(7) EXCLUSIVITY FOR REFERENCE PRODUCT.—

(A) EFFECTIVE DATE OF BIO SIMILAR APPLICATION APPROVAL.— Approval of an
application under this subsection may not be made effective by the Secretary until the date
that is 12 years after the date on which the reference product was first licensed under
subsection (a).

‘(B) FILING PERIOD. — An application under this subsection may not be submitted to the
Secretary until the date that is 4 years after the date on which the reference product was first
licensed under subsection (a). 49

Some discussion has occurred about whether the 12-year regulatory exclusivity period identified
in the statute operates as “data protection” or as a “marketing exclusivity.” In the FDA’s public

45 42 U.S.C.§262(k)(2).

46 42 U.S.C. §262(i)(3).

47 42 U.S.C. §262(k)(4).

48 42 U.S.C. §262(k)(8).

49 42 U.S.C. § 262(k)(7).

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hearing notice, the agency referred to a “12-year period of marketing exclusivity.” 50 Several
Members of Congress drafted letters to the FDA explaining that the 12-year period instead acted
as a data exclusivity. One letter explained:

The Act does not provide market exclusivity for innovator products. It provides data
exclusivity, which prohibits FDA from allowing another manufacturer of a highly similar
biologic to rely on the Agency’ s prior finding of safety, purity and potency for the innovator
product for a limited period of time. It does not prohibit or prevent another manufacturer
from developing its own data to justify FDA approval of a full biologies license application
rather than an abbreviated application that relies on the prior approval of a reference
product . 51

Similarly, other Members of Congress explained that the 12-year regulatory exclusivity acts as
data exclusivity that “only protects the FDA from allowing another manufacturer to rely on the
data of an innovator to support another product. Importantly, it does not prohibit or prevent
another manufacturer from developing its own data to justify FDA approval of a similar of
competitive product.” 52 A third letter from Members of Congress stated their belief that “the
statute is clear that the FDA can begin reviewing biogeneric applications during the 12 year
exclusivity period.” 53 The FDA subsequently issued a draft guidance document that appeared to
align the agency’s view with that of the congressional correspondents. 54

The BPCIA stipulates some circumstances where regulatory exclusivity may not be awarded.
Supplements to the reference product application; the identification of new indications, routes of
administration, dosing, or delivery; and modifications to the structure of the biological product
that do not result in a change in safety, purity, or potency are not eligible for this proprietary
interest. 55

Both the 4-year and 12-year protection periods may be extended by 6 months. If the FDA
determines that information relating to the use of a biologic in a pediatric population may produce
health benefits in that population, it may make a written request for pediatric studies. If the
applicant completes the test within a timeframe established by the FDA, each term of regulatory
exclusivity may be extended by 6 months. 56 This additional term of protection is awarded whether
or not the studies prove the product may be administered to children in a safe and effective
manner.

50 Dept. Health & Human Servs., FDA, “Approval Pathway for Biosimilar and Interchangeable Biological Products;
Public Hearing; Request for Comments,” 75 Federal Register (Oct. 5, 2010), 61497.

51 Letter of January 7, 2011, from Senator Michael Enzi et al., to Dr. Margaret Hamburg, Commissioner, FDA
(available at http://www.hpm.com/pdl71-7-l l%20Senate%20Biologics%201etter%20to%20FDA.pdf) (signed by
Senators Enzi, Hagan, Hatch, and Kerry).

52 See Letter of December 21, 2010, from Representative Anna G. Eshoo, et al., to FDA (available at
http://patentdocs.typepad.com/files/letter-to-fda.pdf) (signed by Representatives Barton, Eshoo, and Inslee).

53 See Letter of January 24, 2011, from Senator Sherrod Brown, et al., to Dr. Margaret Hamburg, Commissioner, FDA
(available at http://patentdocs.typepad.com/files/senator-letters-exclusivity.pdf) (signed by Senators Brown, Harkin,
McCain, and Schumer).

54 FDA, Guidance for Industry, Biosimilars: Questions and Answers Regarding Implementation of the Biologies Price
Competition and Innovation Act of 2009 (Feb. 2012), 3.

55 42 U.S.C. §262(k)(7)(C).

56 42 U.S.C. §262(m).

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In enacting the BPCIA, Congress recognized the possibility that a biologic may qualify as a so-
called orphan drug. This status arises under an earlier statute, the Oiphan Drug Act of 1982. That
legislation provided for a seven-year period of regulatory exclusivity commencing from the date
the FDA allowed the oiphan drug to be marketed. The orphan drug exclusivity applies to drugs
that treat a rare disease or condition (1) affecting less than 200,000 people in the United States, or
(2) affecting more than 200,000 people in the United States, but for which there is no reasonable
expectation that the sales of the drug would recover the costs. 57 Oiphan drug exclusivity prevents
the FDA from approving another application for marketing approval for the indication for which
the drug is approved. As a result, the FDA could approve a second application for the same drug
for a different use. The FDA cannot approve the same drug made by another manufacturer for the
same use, however, unless the original sponsor approves or the original sponsor is unable to
provide sufficient quantities of the drug to the market. 58

The BPCIA stipulates that if a brand-name biologic has been designated an oiphan drug, the FDA
may not approve an application for a biosimilar or interchangeable product until the later of ( 1 )
the 7-year period of orphan drug exclusivity described in the FFDCA; or (2) the 12-year
protection period established by this bill. 59 As a result, the Orphan Drug Act’s 7-year exclusivity
period runs concurrently with the BPCIA’s 12-year exclusivity period.

First Interchangeable Products

The BPCIA also provides for a term of regulatory exclusivity for the applicant that is the first to
establish that its product is interchangeable with the brand-name product for any condition of use.
The period of regulatory exclusivity is the earlier of (1) one year after the first commercial
marketing of the first interchangeable biologic to be approved as interchangeable with that
reference product; (2) 1 8 months after either a final court judgment in patent infringement
litigation under the PHS Act, as amended, or the dismissal of such litigation against the first
applicant; (3) 42 months after the approval of the first interchangeable biologic if patent litigation
under the PHS Act, as amended, remains pending; or (4) 1 8 months after approval of the first
interchangeable biologic if the applicant has not been sued for patent infringement under the PHS
Act, as amended. 60

This regulatory exclusivity bars the FDA from making a determination of interchangeability with
respect to a subsequent product for a period of time. The FDA is not prevented from making a
determination of biosimilarity during this timeframe.

Patent Dispute Resolution

The BPCIA establishes specific rules for the resolution of patent disputes involving follow-on
biologies. 61 These rules require the brand-name firm and the follow-on applicant to engage in a

57 21 U.S.C, §360bb(a)(2).

58 21 U.S.C, §360cc(b).

59 BPCIA. §7002(h).

60 42 U.S.C, §262(k)(6).

61 See Michael P. Dougherty, “The New Follow-On-Biologics Law: A Section by Section Analysis of the Patent
Litigation Provisions in the Biologies Price Competition and Innovation Act of 2009,” 65 Food and Drug Law Journal
(continued...)

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number of interactions prior to the commencement of litigation. These interactions include (1) the
follow-on applicant must disclose its application to the brand-name firm; (2) each party must
identify pertinent patents; (3) the parties must exchange briefings on the validity and possible
infringement of those patents; (4) the parties must negotiate which patents will be subject to
litigation; and (5) a simultaneous exchange of patents designated for litigation in the event the
parties could not reach agreement. Each of the stages of this pre-litigation process is reviewed
below. It should be appreciated from the outset that third parties cannot participate in this process,
although a representative of a patent proprietor who has exclusively licensed the brand-name firm
and retained a right to assert the patent or participate in litigation concerning the patent may have
access to the follow-on application. 62

Disclosure of the Follow-On Application. The BPC1A requires that the follow-on applicant,
within 20 days after the FDA publishes a notice that its application has been accepted for review,
must disclose to the brand-name firm the existence of the application. The applicant must provide
a copy of its application along with “such other information” concerning the production of the
follow-on product. 53 The applicant may also provide other information that the brand-name firm
requests. 64

Identification of Pertinent Patents. Within 60 days of the date of receipt of the application and
other information from the follow-on applicant, the brand-name firm must identify patents that it
deems relevant to the follow-on product. To be capable of identification, the patents must be
owned or subject to an exclusive license by the brand-name firm. This list must include patents
that the brand-name firm “believes a claim of patent infringement could reasonably be asserted
[against someone] engaged in the making, using, offering to sell, selling or importing into the
United States of the biological product.” 65 The brand-name firm must also identify any patents on
the list that it would be prepared to license to the follow-on applicant. 66

Statement by the Follow-On Applicant. Following the receipt of the brand-name firm’s patent
list, the follow-on applicant must state either that it will not market its product until the relevant
patents have expired, or alternatively provide its views that the patents are invalid, unenforceable,
or would not be infringed by the proposed follow-on product. 67 In addition, the follow-on
applicant may, at its option, provide the brand-name firm with a list of patents it believes the
brand-name firm could assert against the reference product. 68 If the follow-on applicant does so, it
must also state either that it will not market its product until the relevant patents have expired, or
alternatively provide its views that the patents are invalid, unenforceable, or would not be
infringed by the proposed follow-on product. The BPC1A allocates the follow-on applicant 60
days to provide both the mandatory and optional information.

(...continued)

(2010), no. 2 at 231.

62 42 U.S.C, §262(1)(1 )(B)(iii).

63 42 U.S.C, §262(1)(2)(A).

64 42 U.S.C, §262(1)(2)(B).

65 42 U.S.C. §262(l)(3)(A)(i).

66 42 U.S.C. §262(l)(3)(A)(ii).

67 42 U.S.C. §262(l)(3)(B)(ii).

68 42 U.S.C. §262(l)(3)(B)(i).

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Statement by the Brand-Name Firm. In the event that the follow-on applicant has asserted that
the patents are invalid, unenforceable, or would not be infringed by the proposed follow-on
product, the brand-name firm must provide the follow-on applicant with a response within 60
days. The response must provide “the legal and factual basis of the opinion ... that such patent
will be infringed by the commercial marketing” of the proposed follow-on product. 69

Patent Resolution Negotiations. If the brand-name firm issues a statement with its detailed views
that the proposed follow-on product would infringe valid and enforceable patents, then the parties
are required to engage in good faith negotiations. The purpose of the negotiation is to identify
which previously identified patents will be the subject of a patent infringement action. 70 If the
parties agree on the patents to be litigated, the brand-name firm must bring an action for patent
infringement within 30 days. 71

Simultaneous Exchange of Patents. If those negotiations do not result in an agreement within 15
days, then the follow-on applicant must notify the brand-name firm of how many patents (but not
the identity of those patents) that it wishes to litigate. 72 Within five days, the parties are then
required to exchange lists identifying the patents to be litigated. 73 The number of patents
identified by the brand-name firm may not exceed the number provided by the follow-on
applicant. However, if the follow-on applicant previously indicated that no patents should be
litigated, then the brand-name firm may identify one patent. 74

Commencement of Patent Litigation. The brand-name firm may then commence patent
infringement litigation within 30 days. That litigation will involve “each patent that is included on
such lists” — in other words, all of the patents on the brand-name firm’s list and all of the patents
on the follow-on applicant’s list. 75 The follow-on applicant must then notify the FDA of the
litigation. The FDA must then publish a notice of the litigation in the Federal Register. 11 '

Notice of Commercial Marketing. The BPCIA requires the follow-on applicant to provide notice
to the brand-name firm 180 days in advance of its first commercial marketing of its proposed
follow-on biologic. 77 The brand-name firm is allowed to seek a preliminary injunction blocking
such marketing based upon any patents that either party had preliminarily identified, but were not
subject to the initial phase of patent litigation. 78 The litigants are required to “reasonably
cooperate to expedite such further discovery as is needed” with respect to the preliminary

• • • • 79 ’

injunction motion.

The BPCIA stipulates a number of other important features of this unique patent dispute
resolution system. First, the BPCIA provides for relevant patents that are issued to the brand-

69 42 U.S.C. §262(1)(3)(C).

70 42 U.S.C. §262(1)(4)(A).

71 42 U.S.C. §262(1)(6)(A).

72 42 U.S.C. §262(1)(5)(A).

73 42 U.S.C, §262(l)(5)(B)(i).

74 42 U.S.C, §262(l)(5)(B)(ii)

75 42 U.S.C, §262(1)(6)(B).

76 42 U.S.C. §262(1)(6)(C).

77 42 U.S.C. §262(1)(8)(A).

78 42 U.S.C. §262(1)(8)(B).

79 42 U.S.C. §262(1)(8)(C).

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name firm, or for which the brand-name firm obtains an exclusive license, after the brand-name
firm has provided its initial list of relevant patents to the follow-on applicant. 80 In such
circumstances the brand-name firm must provide the follow-on applicant with a supplement that
identifies the patent within 30 days of its issuance of licensing. 81 The follow-on applicant is then
afforded 30 days to provide either (1) a detailed explanation of why the applicant believes that the
patent is invalid, unenforceable, or not infringed; or (2) a statement that the applicant does not
intend to market the product commercially until the patent expires. 82 Such a patent is to the
“notice of commercial marketing” provision, in that the brand-name firm may move for a
preliminary injunction following notification that the follow-on applicant intends to market its
proposed product. 83

Another notable feature is the BPCIA’s stipulation of which individuals may receive the
information that the follow-on applicant provides to the brand-name firm during the patent
dispute resolution process. 84 The recipients of the follow-on application and manufacturing data
are limited to one in-house counsel employed by the brand-name firm and one or more of the
brand-name firm’s outside counsel. 85 Each of these individuals must abide by a number of
confidentiality requirements stipulated by the BPC1A. In particular, the application and
manufacturing data may not be disclosed to outside individuals without the permission of the
follow-on applicant. 86 Further, the application and manufacturing data are to be used for the sole
and exclusive purpose of resolving the patent dispute. 87

In addition, the BPC1A places some restrictions upon the ability of both the follow-on applicant
and brand-name firm to bring an action for declaratory judgment concerning the validity,
enforceability, or infringement of a patent. If the follow-on applicant does not provide its
application and manufacturing data within 20 days after being notified that the FDA has accepted
its application for filing, 88 then the brand-name firm may bring a declaratory judgment action on
any patent that claims the biologic or its use. 89 If the follow-on applicant does provide its
application and manufacturing data within the 20-day timeframe, 90 then neither party may bring
an action for declaratory judgment regarding any subsequently identified patent prior to the
follow-on applicant’s notice that commercial marketing may begin in 180 days. 91 Further, if the
follow-on applicant initially provides its application and manufacturing data, but subsequently
fails to provide patent-related data as stipulated by the BPC1A, the reference product sponsor may
seek a declaratory judgment based upon the patents it identified. 92

80 The brand-name firm provides this initial list under 42 U.S.C. §262(l)(3)(A)(i).

81 42 U.S.C. §262(1)(7).

82 42 U.S.C. §262(1)(3)(B).

83 42 U.S.C. §262(1)(8)(B).

84 42 U.S.C. §262(1)(1).

85 42 U.S.C. §262(1)(1 )(B)(ii).

86 42 U.S.C. §262(1)(1)(C).

87 42 U.S.C, §262(1)(1 )(D).

88 42 U.S.C, §262(1)(2)(A).

89 42 U.S.C. §262(1)(9)(C).

90 42 U.S.C. §262(1)(2)(A).

91 42 U.S.C. §262(1)(9)(A).

92 42 U.S.C. §262(1)(9)(B.

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Finally, the infringement remedies that brand-name firms may obtain are limited if they fail to
identify a patent or to commence patent litigation within the time limits established by the
BPC1A. If a brand-name firm does not bring a patent infringement action in the courts within the
statutory 30-day time period, 93 then a court may only award a reasonable royalty as relief for
infringement of a patent named in that suit. 94 If the brand-name firm does not identify in a timely
manner a patent in response to receipt of the follow-on application and manufacturing data, then
it may not assert the patent at all. 95 A later-acquired patent may also not be asserted if it is not
identified within 30 days of its acquisition or exclusive licensing.

The Potential Market for Follow-On Biologies

A core issue concerning the BPC1A is its ability to preserve innovation while also stimulating
competition in the biologies market. Many experts agree that the Hatch-Waxman Act has had a
significant effect on the availability of small-molecule, generic substitutes for brand-name
drugs. 96 Prior to the enactment of the Hatch-Waxman Act, 35% of top-selling drugs had generic
competitors after patent expiration; now almost all do. 97 Concurrently, the time to market for
these generic products has decreased substantially. According to the Congressional Budget Office
(CBO), prior to passage of the act in 1984, the average time between the expiration of a brand-
name patent and the availability of a generic was three years. Today, upon FDA approval a
generic may be introduced immediately after patents on the innovator drug expire as companies
are permitted to undertake clinical testing during the time period associated patents are in force.
“By streamlining the approval process for a generic drug form, the Hatch-Waxman Act reduced
the average delay between patent expiration and generic entry into the consumer market from
greater than three years to less than three months for top-selling drugs.” 95 In cases where the
generic manufacturer is the patent holder, a substitute drug may be brought to market before the
patent expires.

In the absence of the research, development, and testing performed by the brand-name
pharmaceutical companies, generic drugs as we know them today would not exist. The provisions
of the Hatch-Waxman Act permit the generic industry to rely on information generated and
financed by the brand-name companies to obtain approval for their product by the FDA.

However, the pharmaceutical industry today differs from what it was in the early 1980s. The cost
of developing a drug has doubled 99 to where it now takes over $1 billion to bring a new drug to
market. 100 Typically, the cost of developing a generic is between $1 million and $5 million. 101 The

93 42 U.S.C. §262(1)(6)(A).

94 35 U.S.C. §271(e)(6)(B).

95 3 5 U.S.C. §271(e)(6)(C).

96 For a detailed discussion on the results of the Hatch-Waxman Act see CRS Report R41 1 14, The Hatch-Waxman Act:
Over a Quarter Century Later, by Wendy H. Schacht and John R. Thomas, The Hatch-Waxman Act: A Quarter
Century Later , by Wendy H. Schacht and John R. Thomas.

97 Michael A. O’Shea and Christopher M. Mikson, “The Hatch-Waxman Act: Still Critical, Still in Flux,” The National
Law Journal , January 23, 2006.

9S David A. Holdford and Bryan A. Liang, The Growing Influence of Generic Drugs: What it Means to Pharmacists and
Physicians, Power-Pak C.E., December 2006, available at http://www.centad.Org/seminar/4.%20Generics/
GrowingInfluencePowewrPak2006.pdf.

99 The Hatch-Waxman Act: Still Critical, Still in Flux.

100 Christopher Paul Adams and Van Vu Brantner, “Spending on New Drug Development,” Health Economics,
(published online 26 Feb.2009) Epub ahead of print.

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number of clinical trials necessary to file a new drug application has doubled since 1980 and the
number of participants in these trials has tripled. 102 Thus, the rate of return from investment in a
new drug has dropped by 12% over this time period. 103 Concurrently, companies appear to be
moving away from the development of drugs that address large patient populations, but for which
they cannot charge high prices, toward more specialized medicines, primarily biologies, that may
be used by fewer patients, but for which high prices can be secured. In 2007, 55 blockbuster
drugs were considered specialized products, up from 12 in 2001. 104

While in the traditional pharmaceutical market, generic substitutes commonly become available
to consumers as patents on brand-name drugs expire due to the provisions of the Hatch-Waxman
Act, the loss of patent protection for biologies has not and is not expected to generate similar
results. As discussed previously, biologies differ significantly from traditional pharmaceuticals in
their complexity and method of manufacture. 105 The unique nature of biologies and their
manufacture may militate against the type of savings generated by small-molecule generics. It
remains uncertain whether or not there will be a significant market for follow-on biologies and
what cost-savings may or may not be generated. According to some experts:

The economics of the small-molecule generics market likely will not be transferrable to the
follow-on biologies market. High barriers to entry, high fixed costs of manufacturing, and
marketing expenses will more likely manifest themselves in a market that has a small
number of firms with relatively small price drops upon introduction of follow-on
therapies. 106

While analysts argue that “The capital and expertise required to develop, scale up, and achieve
yields competitive with experienced innovators, combined with the added uncertainty around
gaining regulatory approval, may make entry of biosimilars in the markets less financially
attractive,” 107 other commentators maintain that over time a competitive market will emerge and
“flourish” although the “field of play will be narrower than previously thought.” 108 The producers
of follow-on biologies are expected to be led by a small group of companies including those
already in the established generic market such as Teva, Sandoz, Cangene, Biocon, and Dr.
Reddy’s. 109

(...continued)

1(11 Federal Trade Commission, Emerging Health Care Issues: Follow-on Biologic Drug Competition, June 2009, iii,
available at http://www.ftc.gov/os/2009/06/P083901biologicsreport.pdf.

102 Gregory J. Glover, “The Influence of Market Exclusivity on Drug Availability and Medical Innovations,” The AAPS
Journal , August 3, 2007, E313.

103 The Hatch-Waxman Act: Still Critical, Still in Flux.

104 PriceWaterhouseCoopers, Pharma 2020: Marketing the Future, February 2009, 13, available at
http://www.pwc.com/pharma.

105 Ibid.

106 Ian Evans, “Follow-on Biologies: A New Play for Big Pharma,” Yale Journal of Biology and Medicine, June 2010,
available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2892764/.

107 Dean & Company, The U.S. Biosimilars Market, Threats and Opportunities, April 4, 2010, 4, available at
http://www.dean.com/expertise/biosimilars.pdf.

IIIS Bruce Carlson, “Biosimilar Market Fails to Meet Projections,” Genetic Engineering & Biotechnology News,
October 1, 2009, available at http://www.genengnews.eom/keywordsandtools/print/l/12970/.

109 Ibid.

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In Europe, where biosimilars have been approved since June 2003, there has been little
penetration of the market by follow-on biologies. Laws prohibiting automatic substitution of
follow-on drugs and safety concerns have inhibited widespread use of biosimilars. 1 1(1 According
to a report by Dean & Company, “A combination of safety concerns, brand loyalty, and
aggressive pricing strategies by branded manufactures have contributed to their lack of traction in
spite of their lower price.” 111 Sales of Omnitrope, the first FDA approved biosimilar, are only 1%
of the $83 1 million European human growth hormone market, due in part to doctors unwilling to
change products, delivery mechanism issues, and prices that are only 20%-25% below
innovator. 112 In the United States, to date, there has been only “tepid demand” for Omnitrope. 1 13

Several specific issues that may affect the market for follow-on biologies are discussed below.

Clinical Trials

Currently, there is uncertainty over the biosimilar approval process that will be required by the
FDA; however, all experts agree that, at least initially, clinical trials of the follow-on product
likely will be necessary. The scale and extent of clinical trials are expected to factor into whether
or not this industry will provide the cost savings needed to be viable. 114 The varied characteristics
of individual biologic products may make it likely that regulatory and developmental
requirements for follow-on products will need to reflect each individual situation. 115 Innovator
and generic manufacturers appear to agree that “unlike small-molecule copycats, for biogenerics
[sic], the nature and extent of the data needed will also depend very much on the product
involved: regulatory guidelines must be defined product by product.” 116

The number and extent of clinical trials that may be required for approval of a biosimilar is
reflective of the general nature of biologies that has resulted in longer mean clinical development
time for these products when compared with traditional drugs. 117 The number of clinical trials
necessary to file a new drug application has doubled since 1980 and the number of participants in
these trials has tripled. 118 If additional clinical trials are necessary to demonstrate “sameness,”
effectiveness, and safety, estimates are that it may take twice the time to develop a follow-on
biopharmaceutical than a chemical generic with a cost that some expect to be 8-100 times higher
than that associated with a traditional generic product. 119 Phase III trials are the most expensive of

110 Bain & Company, Biosimilars: A Marathon, Not a Sprint, December 16, 2009, 2, available at http://www.bain.com/
bainweb/PDFs/cms/Public/2009_BB_Biosimilars.pdf.

1 1 1 The U.S. Biosimilars Market, Threats and Opportunities, 6.

112 Laura A. Carpenter, “Generic Substitution and Biophannaceuticals: Where Are All the Follow-on Biologies: And,
How Much Money Will They Save?” The National Law Review, January 1, 2010, available at
http://www.natlawreview.com/article/generic-substitution-and-biophannaceuticals-where-are-all-follow-bi.

113 Biosimilars: A Marathon, Not a Sprint, 3.

114 “Delay in U.S. Regulatory Approval Significantly Lowers Forecast for BioGenerics Market to $2.3 Billion,”
Business Wire, November 22, 2005.

115 John Ansell, “Biogenerics Part I: Set to Make Real Inroads or Not?,” PharmaWeek, January 26, 2006, available at
http://www.pharmaweek.com?Exclusive_Content/l_26.asp.

116 Ibid.

117 The Market For Follow-On Biologies: Flow Will It Evolve? , 1293.

1 18 Gregory J. Glover, “The Influence of Market Exclusivity on Drag Availability and Medical Innovations,” The AAPS
Journal , August 3, 2007, E313.

119 IMS Health, “Biogenerics: A Difficult Birth?,” May 18, 2004 available at http://www.imshealth.com/web/content/
(continued...)

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the required trials and any additional requirements for follow-on biologies likely would increase
the cost to the public. 120

Manufacturing Considerations

Biotechnology drugs are characterized by their manufacturing process such that:

The manufacturing process for each biologic defines, to a significant extent, the product
because biologies are based on living cells or organisms whose metabolisms are inherently
variable. Moreover, apparently small differences between manufacturing processes can cause
significant differences in the clinical properties of the resulting products . 121

Manufacture of biologies will therefore tend to be significantly more expensive than traditional
chemically synthesized drugs. 122 It has been estimated that each large U.S. -based biologic
“manufacturing facility costs between $200 and $400 million to build, and takes four years before
gaining approval by the US Food and Drug Administration.” 123 In addition, the cost of materials
to manufacture biologies may be 20 to 100 times more than chemical drugs. 124 The production
process for biologies typically takes longer than traditional drugs and may take eight to nine
months. 125

The FDA is required to inspect the manufacturing facilities and processes involved in the
production of biologies: “Unlike small-molecule manufacturing, biomanufacturers get approval
for both the drug and the process used to make it, and that approval can take years.” 126 Therefore,
these facilities must be built and operational prior to the FDA approval process. According to
FDA guidelines, “Issuance of a biologies license is a determination that the product, the
manufacturing process, and the manufacturing facilities [emphasis added] meet applicable
requirements to ensure the continued safety, purity and potency of the product.” 127

When the manufacturing process is altered in any way, the FDA typically requires that this
validation be repeated. 126 Such manipulation may alter the nature of the product that is

(...continued)

0,3 1 48,64576068_63872702_7026 1 000_7 1 026746, 00.html.

120 Ernst & Young, “Coming of Age,” Beyond Boarders, 2005, available at http://www.ey.com/beyondboarders.

121 Christopher Webster et al., “Biologies: Can There Be Abbreviated Applications, Generics, or Follow-On Products?,”
Internationa! BioPharm, July 1, 2003, available at http:P//www.biopharm-
mag.com/biophann/article/articleDetail.jsp?id=73785.

'"Henry Grabowski, Iain Cockbum, and Genia Long, “The Market For Follow-On Biologies: How Will It Evolve?,”
Health Affairs, September/October 2006, 1293 and Linda Hull Felcone, “The Long and Winding Road to Biologic
Follow-ons,” Biotechnology Healthcare, May 2004, 24, available at littp://www.bioteclinologyhealthcare.com/joumal/
fulltext/l/2/BH0 102020. pdf.

123 Alison McCook, “Manufacturing on a Grand Scale,” The Scientist, February 14, 2005, available at
http://www.thescientist.com.

124 The Market For Follow-On Biologies: How Will It Evolve? , 1293.

125 The Long and Winding Road to Biologic Follow-ons, 24.

126 Alison McCook, “Manufacturing on a Grand Scale,” The Scientist, February 14, 2005, available at
http://www.thescientist.com.

127 U.S. Food and Drug Administration, Frequently Asked Questions About Therapeutic Biological Products, July 26,
2006, available at http://www.fda.gov/cder/biologics/qa.htm.

128 Manufacturing on a Grand Scale.

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produced . 129 One commentator stated: “It’s hard to predict how process variations will change a
product’s safety or effectiveness .” 130 This can be a result of the incidence of impurities arising
from changes in the method of production and the increased opportunity of adverse immune
reactions . 131 Finding and identifying impurities in biologies may be difficult as, to date, simple
tests do not exist. Thus, additional costs may be associated with preventing impurities from
entering into the production process . 132

The manner in which a follow-on biologic is made may have significant impact on the
composition of the final product and its cost. Experts maintain that the manufacturing process is
“far more difficult to perfect and replicate from one facility to another .” 133 The number of firms
able to produce a biosimilar may therefore be limited , 134 while making the product relatively
more expensive than a small-molecule generic pharmaceutical:

the ability of biosimilars manufacturer to increase market share through low pricing will be
dictated not only by varying up-front development requirements, but also by its relative
manufacturing costs, which are more significant for biologies compared with small-molecule
drugs. The ability of a biosimilars manufacturer to achieve a favorable cost position will be
dictated by factors such as scale, location of capacity and efficiency (i.e., yields) in protein
expression and purification . 135

Sales and Marketing

Several commentators have suggested that marketing costs associated with follow-on biologies
will be higher than with traditional generics because of the need to convince doctors that these
products generate similar results . 136 If the follow-on biopharmaceutical cannot be termed
equivalent to the brand-name drug, doctors and pharmacists may not be willing to readily
substitute the biosimilar. Therefore, it may be expected that:

Marketing and patient support are more important for biosimilars, favouring companies with
significant financial resources and who have had experience in marketing branded products.

The generics market has historically used prices to secure market share, so it is important for
biosimilar developers to understand and act on these factors. Early-stage success in the

129 Ingrid Kaldre, “The Future of Generic Biologies: Should the United States ‘Follow-On’ the European Pathway?”
Duke Law and Technology Review , November 6, 2008, available at http://www.law.duke.edu/joumals/dltr/articles/pdf/
2008dltr0009.pdf.

130 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available at
http://www.smartmoney.com/barrons/index.cfm?story=20060522.

131 Joshua W. Devine, Richard R. Cline, and Joel F. Farley, “Follow-on Biologies: Competition in the
Biophannaceutical Marketplace,” Journal of the American Pharmacists Association, March/ April 2006, 194.

132 Gurdeep Singh Shah, “The Current Market for Generic Biologies,” International Biophannaceutical Association,
June 2006, available at http://www.ibpassociation.org/IBPA_articles/jun2006issue/
The_Current_Market_for_Generic_Biologics.htm.

133 Michael S. Labson and Krista Hessler Carver, “Follow-on Biologies Proposals v. Hatch-Waxman: What the FOB
Market Might Look Like. ” Covington & Burling RA Focus, January 2008, 17, available at http://www.cov.com/files/
Publication/43b 1 a2 Ib-04e0-4f78-bb72-035bfa 1 ccO 1 4/Presentation/PublicationAttachment/5fl 54780-42 1 2-48dc-b0d2-
1 06647 1 0e5 1 a/Follow-on%20Biologics%20Proposals%20v.%20Hatch-Waxman%20-
%20What%20the%20FOB%20Market%20Mig.pdf.

754 Ibid., 17.

135 Biosimilars: A Marathon, Not a Sprint, 4.

136 The Long and Winding Road to Biologic Follow-ons, 24.

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biosimilars market, however, is more dependent on the speed to market and successful
marketing strategies . 137

Many experts argue that a strong sales and marketing force is needed to “educate” doctors and
consumers even if the price of the biosimilar is 20%-30% lower than the brand-name drug. 137
This effort may require a new sales force and added investment on behalf of the company
producing a biosimilar. 139 Due to the particular issues associated with follow-on biologies,
successful commercialization may “require a field sales force outside of the traditional skills of
the wholesale-driven generics industry.” 140 Because providers may not be comfortable with
substitution of products that are not identical to the innovator drug, there is expected to be a steep
learning curve, less competition, and higher prices. 141

The greater the number of small-molecule generic alternatives, the lower the cost. “For example,
the average price reduction for a generic that has been granted 180-day exclusivity is only 30%,
as compared to a 70% amount for multi-source generics.” 142 However, biologies may not generate
multiple follow-on products for the same brand-name biopharmaceutical because of the higher
costs associated with bringing these drugs to the marketplace. Price differentials associated with
follow-on products may not be as great as with other generics because of the large initial costs
related to establishing manufacturing facilities and performing any additional clinical studies
necessary for FDA approval. Therefore, the makers of follow-on products would be expected to
charge prices that, while lower than the brand biologic, would be relatively higher than those
charged for typical small-molecule drugs. 147 In addition, “Financial and scientific barriers might
prevent the cutthroat price wars fought in the traditional generic market.” 144

A study by Kalorama Information ( The Market for Generic Biologies: Issues, Trends, and Market
Potential, June 1, 2005) estimated that follow-on products will sell for only 10%-20% less than
the brand-name biologic, not the 40%-80% reduction in price generally seen with chemical drug
generics. 145 A Merrill Lynch analysis 146 estimated prices 20%-30% below the brand biologic for
the first biosimilar to be marketed while a report by Citizens Against Government Waste 147
estimated savings of 10%-25% over the brand biologic price in the first year and 25%-47% by the
fifth year after introduction of a follow-on drug. The Federal Trade Commission issued a report in

137 Mark J. Betsey, Laura M. Hams, Romita R. Das, and Joanna Chertkow, “Biosimilars: Initial Excitement Gives Way
to Reality,” Nature Reviews Drue Discovery , July 2006, available at http://www.nature.com/nrd/joumal/v5/n7/full/
nrd2093.html.

138 Cynthia Challener, “Big Phanna’s Edge in Biosimilars,” ICIS Chemical Business, February 10, 2010, available at
http://www.icis.com/Articles/2010/02/15/9333235/Follow-on-biologics-present-opportunity-to-big-pharma.litml.

139 Mari Edlin, “PPACA Creates Approval Pathway for Follow-On Biologies,” Drug Topics, August 15, 2010,
available at http://license.icopyright.net/user/viewFreeUse.act?fuid=OTg5NTgyMQ%3D%3D.

140 The U.S. Biosimilars Market, Threats and Opportunities, 5.

141 Biosimilars: A Marathon, Not a Sprint, 3-4.

142 Generic Substitution and Biopharmaceuticals : Where Are All the Follow-on Biologies: And, How Much Money Will
They Save?

143 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available at http://smartmoney.com/
print/index.cfm?printcontent=/barrons/index.cfmstory=20060522.

144 Ibid.

145 Susan J. Ainsworth, “Biophannaceuticals,” Chemical and Engineering News, June 6, 2005, 21-29.

146 Merrill Lynch, Biogenerics: Big Opportunities, Small Threat, September 6, 2006.

147 Everett Ehrlich and Elizabeth L. Wright, "Biogenerics: What They Are, Why They Are Important, and Their
Economic Value to Taxpayers and Consumers,” Citizens Against Government Waste, May 2, 2007.

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June 2009 stating that follow-on companies “are likely to introduce their drug products at price
discounts between 10 and 30 percent of the pioneer products’ price to the most price-sensitive
customers.” 148 Duke University Professor Henry Grabowski and his colleagues reached similar
findings. 149 Additional analysis by University of North Carolina Professor John Vernon and others
found that biosimilars will generate prices between 10% and 25% less than the innovator
product. 150 A study prepared for the Department of Health and Human Services states that price
discounts for follow-on products are expected to be in the 10%-20% range. 151

Potential Industry Responses

New Biologic License Applications (BLAs)

Companies possess various options in bringing follow-on products to the marketplace. Several
firms, including the largest generic drug producer Teva, plan to continue using the established
biologies approval process. 152 Companies may choose to make a new innovator biologic for the
same medical condition rather than a follow-on drug if the required clinical trials are parallel to
those associated with the standard approval process, a biologic license application. “Only a small
tweak in the manufacturing process for an already-marketed biologic could offer another 1 2 years
of exclusivity to its owner,” rather than any limited exclusivity provided by a designation of
“interchangeability.” 153

Collaborative Work with Big Pharma

An accelerated approval process for follow-on biologies may facilitate cooperative efforts
between traditional, small-molecule generic drug companies and large pharmaceutical firms (“Big
Pharma”). As discussed previously, significant barriers may block the development and
commercialization of biosimilars because of the technical challenges associated with
manufacturing and the number and breadth of required clinical trials. 154 Additionally, many
generic firms may not possess the marketing capabilities that may be necessary to convince

148 Emerging Health Care Issues: Follow-on Biologic Drug Competition, 23.

149 Henry Grabowski, Iain Cockburn, Genia Long, Richard Mortimer, and Scott Johnson, The Effect on Federal
Spending of Legislation Creating a Regulatory Framework for Follow-on Biologies: Key Issues and Assumptions,
August 2007, 2, available at http://www.bio.org/healthcare/followonbkg/
Federal_Spending_of_followonbkg200709.pdf.

18(1 John A. Vernon, Alan Bennet, and Joseph H. Golec, “Exploration of Potential Economics of Follow-On Biologies
and Implications for Data Exclusivity Periods for Biologies,” Boston University School of Law, Journal of Science and
Technology Law, 2010, 69, available at http://www.bu.edu/law/central/jd/organizations/joumals/scitech/volumel61/
documents/VemonWEB.pdf.

151 The Lewin Goup and i3 Innovus, Economic Analysis of Availability of Follow-on Protein Products, prepared for the
Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, July 2009,
54, available at http://aspe.lilis.gov/sp/reports/2009/fopps/report.pdf.

152 Thomas Gryta, “Biosimilar Development Progresses, Without FDA Guidelines,” SmartMoney, September 14, 2010,
available at http:www.smartmoney.com/news/on/?story=on-20100816-000267 and Lewis Krauskopf, “Interview-Teva
Sees Flawed U.S. Biosimilars Process, Forexpros.com, June 23, 2010, available at http://www.forexpros.com/news/
general-news/interview-teva-sees-flawed-u.s.-biosimilars-process-144818

153 PPACA Creates Approved Pathway for Follow-On Biologies.

154 Follow-on Biologies: A New Play for Big Pharma.

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doctors and other providers to use biosimilars. Thus, these companies may partner with the large
pharmaceutical firms that have the expertise necessary to penetrate the follow-on market: “With
access to financing, well-established sales and marketing, and in some cases existing
biotechnology capabilities, these [large] companies may have a real advantage.” 155 The extensive
workforce of Big Pharma, and the existing relationships with doctors and hospitals, can influence
decisions concerning follow-on products which can benefit the generic manufacturer. 156

Concurrently, large pharmaceutical companies may be interested in collaborating with traditional
generic manufacturers to develop follow-on products as an alternative source of revenue. 157 As
patents on small-molecule pharmaceuticals expire and drug approvals lag despite increased R&D,
some large firms will look to joint efforts to augment the products in their pipeline. 158 Follow-on
biologies may look attractive because they “command high prices, will likely have fewer entrants
than generics due to high barriers to entry, and play to the existing strengths of big pharma
firms.” 159

Biobetters

Another approach to the biologies market is the development of what are termed “biobetters,”

a drug that is in the same class as an existing biopharmaceutical but is not identical. While a
biosimilar should perform as well as the original, a bio-better is expected to have certain
advantages, such as improved safety and efficacy . 160

If the cost to bring a biosimilar to the marketplace is between $ 1 00 million to $200 million
dollars, 161 it may be more profitable for a firm to develop a biobetter that can compete with the
innovator product, establish market share, and obtain 12 years of data exclusivity. Companies
producing biobetters will have to use the traditional biologic approval process; however, the risk
of failure may be diminished because the innovator product already has been shown to be safe,
effective, and commercially successful. 162

Generics companies have more than one option: Instead of advancing biosimilars, they can
out-compete the pioneer products, increase market share, and avoid start-up costs, building
overall profits.... A company starts with a validated drug target, established market, and a
proven clinical development approach, but incorporates a simple change in the development
process or design of the drug molecule that could drastically improve the product offering.

By modifying the pioneer product, a biobetter developer can cut the clinical development

155 Big Pharma ’s Edge in Biosimilars.

156 Follow-on Biologies: A New Play for Big Pharma.

157 Big Pharma ’s Edge in Biosimilars.

158 Follow-on Biologies: A New Play for Big Pharma.

159 Ibid.

160 Brian Bormley, “A Race To Develop Better-Perfoming Biopharmaceuticals,” Wall Street Journal Blog, August 10,
2010, available at http://blogs.wsj.com/venturecapital/2010/08/10/a-race-to-develop-better-perfonning-
biopharmaceuticals/.

161 Emerging Health Care Issues: Follow-on Biologic Drug Competition, iii.

162 Jonathan D. Rockoff, ‘‘Merck Scraps One-Promising Follow-On Biologic for Anemia,” Wall Street Journal Health
Blog, May 11, 2010, available at http://blogs.wsj.eom/health/2010/05/l 1/merck-scraps-once-promising-follow-on-
biologic-for-anemia/.

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risk associated with an entirely new molecule, and still compete with the originator’s
product . 163

Similarly, innovator biologic firms may develop biobetters as a means to bring to market new
versions of their existing biopharmaceuticals or to create competing products. For example,
Medlmmune (acquired by AstraZeneca in 2007) does not plan to enter the follow-on biologies
market, but instead will undertake development of biobetters. 164 The intent is to improve the
original biologic and use this to achieve a market advantage. 165 “Superior product will give
pharmaceutical companies the edge to offset competition from an FOB [sic] that has no distinct
advantage over the first-generation product.” 166

Concluding Observations

This overview of the new legislation suggests that the BPC1A is a complex and novel statute.
Resolution of the scientific and legal issues that this legislation raises will likely engage the
courts and the FDA for many years to come. It may also take some time for members of the
biologies industry to develop a working familiarity and appropriate strategies within the BPC1A
framework. As a result, marketplace availability of significant numbers of follow-on biologies
may well be a long-term proposition. 167

Notably, the BPC1A does not employ the same framework as the patent dispute resolution
proceedings that have been available under the Flatch-Waxman Act for more than a quarter
century. In particular, unlike the Flatch-Waxman Act, the BPC1A does not require brand-name
firms to identify relevant patents in advance of generic competition. Because the FDA publishes a
list of relevant patents in a publication informally known as the “Orange Book,” generic drug
companies possess some ability to assess the patent positions of brand-name pharmaceutical
firms. The lack of an Orange Book may place follow-on biologic applicants as a comparative
disadvantage. 168

On the other hand, some commentators believe that follow-on applicants possess a number of
advantages over the brand-name firm. Follow-on applicants may control the number of patents to
be litigated, at least initially. 169 The failure of brand-name firms to act within tight statutory
deadlines may result in substantial patent enforcement penalties. 170 And, unlike the Flatch-
Waxman Act, the BPC1A does not tightly link FDA approval with patent rights. Brand-name

163 Bassil Dahiyat, “Innovation Over Imitation,” PharmExec.com , November 4, 2009, available at
http ://license. icopyright.net/user/viewF reeUse.act?fuid=MTAxODg3NDg%3D.

164 Laura Bush, “Medlmmune’s Greenleaf on Biophannaceutical Innovation and Biobetters,”

BioPharmInternational.com, May 19, 2010, available at http://biophanninternational. fmdpharma.com/biopliann/News/
MedImmunes-Greenleaf-on-Biopliannaceutical-Innovati/ArticleStandard/Article/detail/670622.

165 David E. Szymkowski, “True Biosimilars Do Not Offer a Compelling Business Case,” PharmTech.com , August 1,
2010, available at http://pliarmtech. fmdpliarma.com/xencor.

166 Innovation Over Imitation.

167 See Czaban, supra.

168 Ibid.

169 42 U.S.C. §262(1)(5)(A).

170 35 U.S.C. §271(e)(6)(B).

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firms must wholly rely upon the judiciary to stay the release of follow-on biologies into the
marketplace . 171

The adoption of a patent dispute resolution system that is distinct from the procedures of the
Hatch-Waxman Act may also suggest congressional dissatisfaction with that regime and a desire
to attempt new approaches. As is always the case in this field of endeavor, individuals interested
in pharmaceutical patent law would be wise to remain vigilant concerning developments to the
new law of follow-on biologies in coming years.

Author Contact Information

John R. Thomas
Visiting Scholar
jrthomas@crs.loc.gov, 7-0975

Acknowledgments

This report was funded in part by a grant from the John D. and Catherine T. MacArthur Foundation.

171 See Dougherty, supra.

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